Renting vs Buying as a function of Capital and Time

Real Estate Agent · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes

Hey Guys! My First post on Bigger Pockets :)

In the Philadelphia Market I am seeing flips AND fix & rental popping up all over town. With all of the articles, youtube videos, and my personal research scrolling through the pages and pages of craigslist, I have yet to understand the magic numbers and factors that would make one option better than the other OR if mixing investments is the way to go.

Any thoughts on that sweet spot between capital, time, or any other factors that investors are looking for that makes them go for a flip vs a rental?

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Derrick Lumsden

Sarver, PA · Member since 2017 · 32 posts · 8 votes

@Jimmy O'Connor Not an expert, but it seems flipping is more attractive to those with less money and more time. And buy and hold for those with more money and less time. Sweet spot would be time available, size of project, and capital available. Will be different for each investor.

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Derrick Lumsden
Sarver, PA · Member since 2017 · 32 posts · 8 votes
7y
@Jimmy O'Connor Not an expert, but it seems flipping is more attractive to those with less money and more time. And buy and hold for those with more money and less time. Sweet spot would be time available, size of project, and capital available. Will be different for each investor.
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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y
They are two completely different activities. Flipping is an active activity, rentals are a passive (to some extent) activity. Flipping is a higher risk activity, and thus being able to flip several properties at once will help to spread that risk out. Buy and holds are lower risk than flipping, but there is a whole spectrum of risk in rentals depending on the class of the property.
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Jimmy O'Connor
OP
Real Estate Agent · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes
7y
Thanks @Derrick Lumsden and @Russell Brazil ! I am just trying to get into the mentality of the the investors that I am working for and info or general concepts help.
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Lana Lee
Philadelphia, PA · Member since 2017 · 364 posts · 109 votes
7y
Originally posted by @Jimmy O'Connor:

Thanks @Derrick Lumsden and @Russell Brazil ! I am just trying to get into the mentality of the the investors that I am working for and info or general concepts help.
If a person has enough money to buy a property to flip but has no reliable contractors and no knowledge of costs or quality of materials, the first flip experience could turn into a nightmare.
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Mike B.
Flipper/Rehabber · Yardley, PA · Member since 2015 · 451 posts · 307 votes
7y
@Jimmy O'Connor... @Derrick Lumsden hit the nail right on the head! I've flipped properties and now I solely do flip-to-rent (BRRRR method). Why? Despite being very handy, I work a FT job, I have a family and other commitments, thus my time is extremely limited and I've found that for me, it's more lucrative (mostly in the long run) to do flip-to-rents (using the BRRRR method) on the side (and keeping my full time W2 job). If I had access to a lot more money, would I consider stopping my W2 job to flip properties and do some rentals? Absolutely. But it's "easier said then done" for sure. Thus, decided to continue with my BRRRR rental properties. I'm on #3 BRRRR project now (click here for writeup) in West Passyunk neighborhood of Philly. After this one I might take a break for a bit.
I think that's what I like about the BRRRs as well. I'm using OPM to purchase and rehab properties and when all is said and done, I can usually own the properties with a mortgage, none of my money tied into it, and I cashflow from each property. I do all of this for the long term gain (increasing rents and thus cashflow, along with appreciation).
Hope this helps
-Mike-
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Jim Goebel
Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes
7y
@Jimmy O'Connor
What drives this mostly is your capabilities, your time constraints, and then the numbers/returns.
While some flips and fix then rents are similar on the capabilities front, not all are. Sometimes your risk reward changes substantially with the types of projects you can get into for one vs the other.
As some other posters have alluded to, time constraints drive a lot - a light rehab/cosmetic buy and hold is possible for navigating while having a 'regular' job - and certainly managing rentals while working is possible as well.
The last one, and I'm surprised no one has mentioned this - is market specific. Some markets have high costs for houses, more so than others. These markets tend to 'compress' and limit the ROI/ROE for a rental - so they tend to be more amenable to flipping. A couple examples are out on the west coast. Even with crazy high rents, when you have to get into a property for 1mil, it's just hard for the returns to out pace the cost of capital, especially when you factor in all the other costs.
The oddity with the last observation is that without capabilities these markets also tend to be the biggest challenge from an execution standpoint for someone just starting out. As in, those markets often with their high prices bring certain expectations regarding the product and quality that you may not have in a rental.
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Karen Rittenhouse
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
7y
@Jimmy O'Connor - you definitely need both - you need rentals for the tax write-offs to offset all the cash coming in from flips and/or wholesales.
Which to keep? I keep properties that I have very little cash tied up in and that the tenants will pay off over only 3-5 years for my rental portfolio.
Anything that needs a lot of rehab and will allow me a good paycheck when done, I flip.
What you keep and what you sell totally depends upon where you are in your investing career and what your goals are.
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Jimmy O'Connor
OP
Real Estate Agent · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes
7y
@Karen Rittenhouse Thanks for that response! For each of my investors, I am trying to make sure I present the opportunities that match their needs and what their individual standards for value. Since I'm not a telepath, your insight is greatly appreciated.
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